Understanding the Differences Between Forum Selection Clauses and Choice of Law Provisions in Kentucky

Contract formation can be like assembling a puzzle – there are countless pieces, options, tools, and different ways to structure an agreement to effectuate your client's needs or protect them in the case of default. On the other side, if your client is entering into a contract, it is important to understand how certain provisions might affect them in the event of subsequent litigation. This article, by Shareholder and Cincinnati Office Managing Attorney Jamie Hart, will focus on two provisions – forum selection clauses and choice of law provisions and discuss how they differ and operate under Kentucky law. 

 

A forum selection clause specifies what location and/or court where a lawsuit must be filed. These provisions are typically included in commercial contracts¹ to provide certainty for the parties about where disputes will be resolved. Forum selection clauses are similar to venue provisions but are generally broader. For example, a forum selection clause may set forth a specific state or forum (ex. arbitration forum) where any action must be filed, whereas a venue provision will set forth a specific county or specific court.    
 

Under Kentucky law, such clauses are enforceable unless they are unjust, unreasonable, or unduly burdensome.² Thus, a party challenging such a clause bears the burden to “present the trial court with countervailing circumstances that would render the clause ‘unreasonable.’”³
 

No discussion of forum selection clauses is complete without also touching on the doctrine of forum non conveniens, which gives a trial court discretion to transfer venue of an action where it otherwise has proper jurisdiction, but for various reasons finds that the current venue is inconvenient or inappropriate.⁵ The inconvenience that drives the decision is that which is experienced by the parties and witnesses, not the judge or court.⁶

Key points regarding forum selection clauses:

 

In contrast, a choice of law clause determines which jurisdiction’s substantive law will govern the rights and obligations of the parties in a dispute. Thus, contrary to a forum selection clause, a choice of law provision does not dictate where a lawsuit shall be brought, but rather mandates the law that will govern any dispute. These provisions are critical in multi-jurisdictional contracts where there are competing laws of different states, and the parties seek certainty as to what state’s law will govern in the event of a dispute.⁷
 

Kentucky adopts the “most significant relationship test” when making such determinations, which mandates that the law of the state that has the most significant relationship to the parties and the transactions should apply.⁸ To determine the most significant relationship, Kentucky courts will look to factors such as where the parties reside or are domiciled at the time of contract, where payment or performance occurred, and where breach of the contract occurred.⁹
 

• It pertains to which state's law applies to the dispute.

• It affects substantive rights, obligations, and defenses.

• Requires courts to analyze which state has the “most significant relationship” to the parties and events.

 

While both forum selection and choice of law provisions are about controlling aspects of a contractual dispute, their application diverges significantly:

It is easy for practitioners and courts to confuse these two distinct provisions, but they are distinct. For example, the Court of Appeals recently issued an unpublished opinion in a case where a trial court declined to enter an agreed judgment in an uncontested commercial debt collection action and dismissed the case under the doctrine of forum non conveniens.¹¹ The case involved a revolving credit account which had certain terms and conditions governing said account and provided that Wisconsin law applied to any disputes arising from the account. The debtor defaulted upon the account and the creditor filed suit against him in the county in which he resided.   
 

Prior to filing any answer in the case, challenging any aspect of the claim or the court’s jurisdiction, the debtor reached an agreement to repay the balance owed and the parties submitted an agreed judgment to the court that memorialized the terms. Yet, upon presentment of the agreed judgment the trial court on its own initiative dismissed the case holding the Wisconsin choice of law provision made the Kentucky court an inconvenient forum for adjudication. The Court of Appeals reversed the dismissal and remanded the case with instructions to the trial court to enter the judgment essentially finding amongst other errors that the trial court had conflated a choice of law provision with a forum selection clause.¹² 

 

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Our team is constantly staying up-to-date on the current trends in the industry. If you have any questions or would like to learn more about Weltman’s consumer and commercial collections solutions, connect with Jamie at any time.

 

This blog is not a solicitation for business, and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.

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¹Practitioners must be careful when reviewing venue provisions in consumer contacts – i.e. those that pertain to debts for personal, family or household purposes.  Litigation filed against a consumer to collect a debt upon a contract may be governed by the Fair Debt Collection Practices Act, 15 U.S.C. §1692, et seq. (“FDCPA”), which provides that there are only two venues in which a lawsuit can be brought – either: 1) where the contract was signed; or 2) the county in which the consumer resides.  15 U.S.C. §1692i(a)(2).  This applies irrespective of any venue provision in the contract.  Furthermore, the FDCPA specifically provides that if a state law conflicts with any part of the Act, and the state law is more restrictive, then the state law shall govern.    15 U.S.C. § 1692n.  Kentucky law provides that proper venue is found only in which the defendant resides.  KRS §452.480.   Thus, in Kentucky, when it comes to venue considerations in consumer debt collection matters, the only proper venue is the county in which the Defendant resides, regardless of any venue provision in the contract or where the contract itself was executed.
²Prudential Resources Corp. v. Plunkett, 583 S.W.2d 97, 100 (Ky. App. 1979); see also Prezocki v. Bullock Garages, Inc., 938 S.W. 888 (Ky. 1997).
³Prezocki, 938 S.W.2d at 889.
⁴Prudential, 583 S.W.2d at 99 – 100.
⁵Dollar General Stores, Ltd. v. Smith, 237 S.W.3d 162, 167 (Ky. 2007) (holding “Forum non conveniens presupposes proper venue, but posits that another county where venue would be proper also is a more convenient forum, and calls for a discretionary ruling by a trial court to that effect.”)
⁶See Roos v. Kentucky Educ. Ass'n, 580 S.W.2d 508 (Ky. App. 1979).
⁷See Fite & Warmath Construction Co. v. MYS Corp., 559 S.W.2d 729 (Ky. 1977).
⁸Breeding v. Massachusetts Indem. & Life Ins. Co., 633 S.W.2d 717, 719 (Ky. 1982) (holding that Kentucky law applied regardless of a Delaware choice-of-law provision as Kentucky had a more significant relationship to the parties and transactions at issue.) citing Lewis v. Family Group, 555 S.W.2d 579 (Ky. 1977); 
⁹Cornett v. Student Loan Solutions, LLC, 672 S.W.3d 852, 857 (Ky. App. 2023 (holding under an analysis of Kentucky’s borrowing statute KRS §413.320, Kentucky’s statute of limitations applied where the borrower resided in Kentucky and payments were made in Kentucky even though the subject student loan contract contained a choice-of-law provision providing that California law governed.)
¹⁰Padgett v. Steinbrecher, 355 S.W.3d 457, 462 (Ky. App. 2011) (holding “By definition, a choice-of-law provision is not a forum-selection clause.”) referencing  John R. Leathers, Choice-of-law in Kentucky, 87 Ky. Law J. 583, 599 (Spring 1999) (distinguishing between choice-of-law and choice of forum provisions, and noting that a choice-of-law clause ... provides that, in whatever forum, disputes between the parties will be governed by the law of a chosen jurisdiction).  See also Heer v. Price, No. 1:06CV–114–R, 2007 WL 1100693, at *2–3, *5 (W.D.Ky. April 11, 2007) (recognizing that choice-of-law and forum selection provisions may differ).
¹¹John Deere Financial, f.s.b. v. Kirby, NO. 2024-CA-1476-MR, 2025 WL 1909340 (Ky. App. July 11, 2025), unpublished.
¹²John Deere Financial, f.s.b. v. Kirby, NO. 2024-CA-1476-MR, 2025 WL 1909340, *2 (Ky. App. July 11, 2025).